Last week, the OECD, the UN Environmental Program, and the World Bank Group, in advance of both the G20 leaders meeting and the COP24 UN Climate Change Conference, called for a radical shift of investment into low-carbon, climate-resilient infrastructure as a means towards limiting the impact of climate change.
In delivering a new report — entitled Financing Climate Futures: Rethinking Infrastructure — to the G20 Summit in Buenos Aires, Argentina, the three international organizations — the Organization for Economic Co-operation and Development, United Nations Environmental Program (UNEP/UN Environment), and the World Bank Group — made it clear to attendants that governments need to adopt a more transformative agenda on low-carbon, climate-resilient investments if the planet is to meet the goals of Paris Climate Agreement.
The report itself is a response to an invitation from the 2017 G20 Hamburg Climate and Energy Action Plan to the three organizations to document public and private activities for making financial flows consistent with the goals of the Paris Agreement. The report also follows on from the 2017 OECD report Investing in Climate, Investing in Growth, which was contributed to the German presidency of the G20 and which laid out the economic case that climate action and economic growth can go hand in hand, as long as strong climate policies are packaged with fiscal and structural reforms. The report is the foundation for a new initiative which intends to help countries move beyond an incremental approach to investing in and financing low-emission, climate-resilient infrastructure, and move towards “the transformational agenda needed for decisive climate action.”
“Investing in low-carbon, climate-resilient infrastructure is vital for the future of the planet, and it can also drive economic growth,” said Gabriela Ramos, OECD Chief of Staff and G20 Sherpa. “The infrastructure challenge creates incentives for reforms that can deliver better performance on both counts. We are losing time though – if we want to deliver we need to move much faster and achieve a systemic shift of trillions of dollars in green investment.”
The need for a transformation of financing low-emission, climate-resilient infrastructure is obvious in the discrepancy between what is needed and what is being achieved. The OECD estimates that $6.9 trillion a year is required up to 2030 to meet climate and development objectives. Needless to say, that is not happening. In fact, according to the International Energy Agency (IEA), current estimates for such financing sits somewhere between $3.3 trillion and $4.4 trillion a year — though, as the OECD is quick to remind, this is very much just an estimate.
The report outlines several key actions that will drive low-carbon investment:
- Plan sustainable and resilient infrastructure for a low-emission and resilient future
- Unleash innovation to accelerate the transition to low-emissions technologies, business models and services
- Ensure fiscal sustainability for a low-emission, resilient future
- Reset the financial system in line with long-term climate risks and opportunities
- Rethink development finance for climate
- Empower city governments to build low-emission and resilient urban societies
The report also explains how scaling-up public and private investments in low-emission and sustainable infrastructure is critical to increasing climate-resilience and avoiding further carbon lock-in. Further, and reiterating conclusions from the OECD’s Investing in Climate, Investing in Growth report, shifting infrastructure investment away from business-as-usual and towards low-carbon options, and combined with structural reforms, could not only build up climate-resilience but could also increase GDP by as much as 5% by 2050, while at the same time cutting emissions.
The benefits from doing so reveal themselves not only in economic equations but in lowering the risks of damage from extreme weather events and in offsetting costs by savings made in fuel. According to figures released by the OECD, governments around the world are spending half a trillion dollars a year subsidizing coal, oil, and gas. Unsurprisingly, therefore, decarbonizing the economy suffers, and financing low-emission, climate-resilient infrastructure becomes a lower and lower priority.
“We cannot ignore the new reality of powerful weather events that threaten jobs, homes, food security and other critical areas of our lives,” said Kristalina Georgieva, Chief Executive Officer of the World Bank. “The infrastructure that is built today must be ready to cope with tomorrow’s changing climate. We need the right incentives and regulations to urgently accelerate funding to these projects.”
There is a slight bit of good news, as highlighted in a report published in April by UN Environment, which showed that reforming the global financial system over the last four years has started to deliver financing for sustainability, while setting up the next wave of action. Specifically, sustainability is becoming a new part of financial institution routine practice, green bond issuance increased from $11 billion in 2013 to $155 billion in 2017, and the number and range of policy measures to advance sustainable finance increased from 139 in 2013 to 300 by 2017.
Unsurprisingly, though, while this is good news, much more needs to be done, and quickly.
“With only 12 years to head off the worst impacts of climate change, we need rapid reform of our economies and societies, including a switch to low-carbon infrastructure,” said Joyce Msuya, Acting Executive Director of UN Environment. “The G20’s economic power and political influence will be crucial to unlocking the investment we need to make this switch.”